Good afternoon, and welcome to the Novartis Q4 and full year 2013 results conference call and live video webcast. Please note that during the presentation, all participants will be in listen-only mode and the conference is being recorded. [Operator instructions.] With that, I would now like to hand over to Mr. Joe Jimenez, CEO of Novartis. Please go ahead, sir.

Thank you. I would like to welcome everybody to our full year 2013 results presentation. Joining me from Novartis are first Harry Kirsch, the CFO; David Epstein is here, head of pharmaceuticals; Kevin Buehler is here, head of the Alcon division; Jeff George, head of Sandoz; Andrin Oswald, head of vaccines; George Gunn, head of animal health; and Brian McNamara, head of OTC business. Now, before we start, I would like to ask Samir Shah to read the Safe Harbor Statement.

Thank you, Joe. The information presented in this conference call contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors. These may cause actual results to be materially different from any future results, performance, or achievements expressed or implied by such statements. Please refer to the company's Form 20-F on file with the Securities and Exchange Commission for a description of some of these factors.

Thanks, Samir. Before we get started, I want to give some observations that I’ve made about the industry over the past year. I believe that this industry is entering a new phase of innovation, and part of it is led by the explosion of data that we have seen that are allowing us to target diseases in new ways, but also new technologies that are emerging. So I believe that the next five years are going to be significant in terms of innovation from the industry. The second point is that cost containment is here to stay. This is something that started during the financial crisis, and it’s not going away. So what that means in terms of how we run our business is that those companies that are going to be able to innovate are the ones that are going to succeed in this industry and if you’re not innovating, I think you’re going to come under more and more cost pressure. So I believe you’re going to see a bifurcation in the industry. And then the final point actually came out of the [unintelligible] in Davos last week. As I talked to health ministers and finance ministers around the world, more and more people are talking about health as a driver of economic growth. So the last five years, we’ve talked all about the financial crisis and whether we’re going over a cliff, but the new thinking, the new description, of how are we going to drive economic growth, a lot of people are saying look, a healthy population is key. What do we need to do to improve the efficiency of our healthcare systems. So I think based on all of this, if you look at Novartis and the way that we’re positioned, I think we’re positioned…

Thank you, Joe. Good morning and good afternoon, everyone. So before we dig into the numbers, I would like to show you how we delivered on our guidance. On slide number 23, our numbers, you can see they are really all in line with the guidance, which we have given throughout the year. And as you know, we have risen the guidance two times, basically due to the delay of our Diovan monotherapy launch of generics in the U.S. as well as our overall good growth momentum. Now, if you turning to slide number 24, I provide a summary of our performance in the fourth quarter and the full year, and once again we grew net sales and core operating income in constant currencies, despite a $2.2 billion impact of generic erosion and competition. In constant currencies, we went up 4% in sales for the quarter and the full year, and core operating income 3% for the full year and also when you go to core earnings per share, up 4% in constant currencies. Of course, our reported results are impacted by currencies, and I will come back to that later. Slide 25 gives you the divisional story on margins in constant currencies. Overall, for the group, you’ll see it on the right lower corner, core operating income margin declined by 0.3%. And this is entirely due, as you can see, to the pharmaceuticals division, where we had a decrease of just over 1 margin point. And it’s driven by increased investment into our promising pipeline as well as generic erosion. Alcon and Sandoz, basically the margins are unchanged for the year. In Alcon, mainly due to higher cost of goods sold, as we launch a new surgical equipment suite. And in Sandoz, they had really a high base last…

Thank you, Harry. As Harry shared with you, the pharmaceuticals business had a very good year in 2013, reporting 3% sales growth in constant currencies, despite absorbing roughly $2.2 billion in new generic inroads. If you look at other companies that have gone through their patent cliff, you’ll see that our performance has been, on a relative basis, actually quite good. Core operating income went down, just over 1%, and that was a conscious decision to invest in a series of programs that had reported good results during the year, LDK378, serelaxin, Secukinumab, and the launch of Ultibro. I’m going to show you in a moment why those are good investments for our business. When you start to dissect the 3% sales growth, you see basically two factors that have driven that strong top line. First, we made a decision a number of years ago to increase our investments in key emerging markets. You can see that paid off with 9% growth during the course of the year. Our emerging growth market sales are now roughly 23% of our total sales. Even more importantly, if you look at how the new product launches are doing, you see the growth products now represent 38% of the business, up 25% over the previous year, which is a very, very good performance, built on a really unparalleled growth platform. Eight product families that had a very good 2013 affect all of them, with the exception of Lucentis, grew strong, double digit, during the course of the year. Five of those product families are already blockbusters, and the others are on their way. Some of the products that we don’t talk about too often in this chart but are worth mentioning here are XOLAIR for severe allergic asthma, grew 24% during the year. And…

: Thanks, David. For 2014, our strategic priorities remain the same. But you can see that in terms of innovation, we hope to file QVA149 in the U.S. - this is the Ultibro Breezhaler - as well as Seebri. And we hope to obtain approval for LDK378 in the U.S., the new lung cancer drug. Now I want to also talk about the fact that we will be putting more focus on the how in 2014. We call this high performance with integrity, and as you know, the world is changing quickly. What’s legal is not always socially acceptable, so we’re going to need to raise our game in all areas around the world from a compliance standpoint, as well as continue the great work that we have currently started on quality assurance. Now, there are three key elements, though, around the strategic priorities that I just want to touch on. I did this at the November analyst meeting. And the first is around actively managing our portfolio. And this is the review that we have primarily of the three smaller businesses at Novartis. I anticipate that this will be concluded, hopefully by summer, definitely by 2014. We’re also going to spend additional time on delivering greater synergies across the division. So we are a diversified business. I don’t think we’re getting as much out of this from a revenue synergy standpoint or a cost synergy standpoint. You’re going to see us put more focus there. And then finally, just continued focus on delivering superior shareholder returns. So as we announced our share buyback of $5 billion over the next two years back in November. If you put that together with the dividend that we just announced, the proposed dividend, as well as a growing dividend in ’15, we could return over $18 billion in cash to shareholders over that two-year period. So I’m not going to repeat the outlook for 2014 that Harry communicated, but we’re bullish on the year, and would now like to open up the call for questions.

[Operator instructions.] We’ll now take our first question from Graham Parry from BANL.

If I could just kick off with one on the guidance. The operating profit growth guidance is roughly mid-single digits if we see generic Diovan and 3% negative FX impact. Consensus is currently looking for around mid-single digit reported growth. So when you look at consensus, do you think that there’s something in there in particular that the Street is too optimistic about? Or is it just a mix of different Diovan assumptions? Secondly, if you could help us to understand Alcon margin pressure from the launches on the capital equipment launch that you’ve been undergoing, and whether that’s likely to continue for how many quarters into 2014, that you expect that margin pressure to continue. And then thirdly, on the wires you’re talking about unique structures for your noncore divisions. Can you clarify whether that would include asset swaps and JVs? Or can we rule either of those out at this point? And then finally, on the Ultibro launch, could you just help us to understand where you think you’re gaining share from there? Is it coming from Spiriva, new patients, or Advair?

We don’t comment versus consensus. In the end, that is, of course, the forecast. We give people the input. And you have seen what we have said. And the FX impact, it’s basically simulated based on early January spot rates. So I think it is hard to model this FX, but that’s why we give this outlook, based on these spot rates, without knowing how the FX will develop. We will give you quarterly updates as we go through the year, and that’s all we can do.

I think the way to think about the guidance that we’ve said today is that we had a hard debate about what do we assume for Diovan mono in the U.S.? And I think we put a stake in the ground and said April, because we don’t know. But April should be worse case for us. And so we said, look, low to mid-single digits, if it comes April, because that would be literally overcoming $3 billion of patent expirations in 2014 and still delivering low to mid. And then even with that $3 billion, showing some kind of margin improvement. So that is operating income growing, core operating income growing, ahead of sales. So obviously, if mono doesn’t come in the U.S., it could be better than that. But I think we needed to put something in the ground, and that’s where we went. Kevin, on Alcon margin pressure?

First of all, I think Harry highlighted that our profit performance for the year was actually quite good, that we showed leverage at a faster rate than our sales growth. And obviously we’ve been able to start to look at two things. One is selling our new capital equipment with Centurion, and obviously that has a slightly lower gross margin than our base product. At the same time, you have to sort of go back and look at the year on a quarter basis. And during the first half of the year, we were underspending against sales and marketing, and we deliberately chose to increase the level of spending in the second half of the year against sales and marketing and specifically our launches. So I think to look forward, we’re going to continue to launch our capital equipment. That’s the foundation for how we create the relationship with the surgeon. At the same time, though, you have to look at the margins in the comp periods so that you realize the periods of time where we were either underspending or spending at a higher rate against our product launches. And at the end of the day, we’re looking to maximize the performance against our key launches and our key brands.

And to the portfolio review question, you should not rule out swaps or JVs. If you go back to the objective, I said we want to build leading businesses at Novartis, and if that means that we’re going to have to assume different or unconventional structures, or ways of thinking about the businesses differently, we’re going to do that. So I wouldn’t take anything off the table today.

You asked me if we had any insight as to where the Ultibro patients were coming from. The reality is, Ultibro, we don’t know yet. But for Seebri, which is the LAMA product that we launched a few months earlier, we have actually some good ideas, and I think it’s indicative of what’s probably happening with Ultibro. In particular, we were surprised by how many patients who were previously on a steroid-containing product like Advair had moved over to Seebri. And I suspect the same thing’s happening with Ultibro.

We’ll take the next question from Alexandra [Hober] for UBS. Alexandra [Hober] - UBS: I have three questions, broadly around the topic of gross margins. Firstly, looking at the second half margins, that can suggest that gross margin will still decline in 2014 as the second half of ’13 was essentially below the first half, for the key divisions, of pharma, Alcon, and Sandoz. And you still have to go through the [divestiture] of Diovan. Firstly, is that conclusion correct, that the 2014 gross margin for the growth will be lower than in 2013? And if so, can you give a little bit more color how you can make up for that in terms of your fixed costs, as Harry mentioned, incremental productivity measures that have been identified? Secondly, on Alcon, just a follow up to Graham’s question. How long will it take for intraocular lens growth to follow the equipment placement? And so therefore, when can the gross margin return to something like the mid-70s level rather than the low 70s level that we’ve seen in the fourth quarter? And given that part of this momentum that was mentioned for the surgical division, do you think that the surgical sales this year can already accelerate from the sort of 7% you have seen in the last two years? And also on gross margin in Sandoz, what is causing this deterioration we’ve seen in the second half? And what will reverse it, essentially? Also, one question on the dividends. Is that 6-7% Swiss franc growth you’ve seen this year, is that going to be a special 2014 effect, or is that the growth rate we should expect in Swiss francs going forward?

Alexandra, you were breaking up, so let me try to summarize the first question. The first question around margins, I think we’ll go to Harry.

It was hard to fully understand the question, but let’s see if I got it. I think the question was mainly around the pressure on gross margin in our large divisions. And you’re right, in pharma, we basically had to work through the [generalization]. These were higher margin, low cost of goods products that were eroding. The Gilenya has a royalty with it, which you’ll see in the cost of goods, so depressing slightly the gross margin. Alcon, we discussed already, and I think there was a follow up question for Kevin, around the equipment sales, which they are negatively impacted from a cost of goods standpoint to gross margin. And Sandoz, a bit different situation, I would say, because they’re working up versus [unintelligible] a very high base last year, where we estimate, you know, in September last year they had the first authorized generic of the Diovan combo at a very high margin, and also in Q4, besides the HDT Diovan launch, they did also four months of [unintelligible] sales. So there’s more, I would say, high prior year base in Sandoz. And now, we don’t give guidance on the P&L line, but overall we have initiated additional productivity measures, and you have seen some of them. Last November we announced consolidation of research. Earlier in January, we announced in pharmaceuticals a restructuring of the primary care business unit in the U.S. as well as resource redeployment in the pharmaceutical headquarters in Switzerland. On top of that, we have announced the closure of the Suffern plant in the U.S. So we are kicking in additional productivity in order to make sure that we grow bottom line ahead of top line.

Kevin, why don’t you also talk about Alcon and the time that it takes from an equipment standpoint to pull through the [IOLs]?

So if we just start with the basic concept, that the installed base in terms of the equipment being used in the OR, when you launch a new piece of equipment you’ve got a choice in terms of converting your own installed base and gaining competitive installed base. And so one of the choices that we’ve made with the success that we had against Centurion is that we are launching at a very aggressive rate, much faster than what we launched Infinity. And the benefit is that you’re able to get two streams of disposables. One stream is related to the packs and the disposables that go with that equipment. And as that installed base starts to cross over against the procedure base, you’re actually getting packs at a higher selling price and a higher gross margin than where we were with Infinity. The second stream of revenue is the IOL. So you have the opportunity to maintain the base that we have with over a 50 share globally, but you also have the opportunity to pull through additional disposables that would be all incremental and all gross margin. But you also have to keep in mind that there’s a large installed base globally that takes time to make the conversion, even with this accelerated rate. So we’re going to continue to sell our capital equipment, and then what you’re going to see is this happening over multiple quarters, where the disposable streams pull through. The other factor that is playing out on gross margin, which is also very positive, is the launch of Dailies Total 1. And as we build capacity against the unit volume, initially you see gross margin impact, but over time that’s going to be a strong driver for both growth as well as profit.

And Alexandra, we missed your third question. Alexandra [Hober] - UBS: It was, again, on the gross margin. For Sandoz, I understand the comparison year on year, but it seemed like the gross margin has been closer to 50% for two or three years, and now in the second half it’s moving to closer to 35%.

I think what I would say is that as Harry noted, there was a significant impact of Diovan HDT and the four months of [unintelligible] in Q4 of 2012. If you look at the full year, excluding foreign exchange, our margins were almost flat, as Harry showed earlier. And that’s despite two important factors. One is that there’s been a significant ramp in our R&D spending on biosimilars, where, as Joe noted, we now have eight Phase III clinical trials, including several [unintelligible] where we’re leading. And secondly, we had over $300 million of higher profits in 2012 than in 2013, due to enoxaparin pricing and the co-Diovan. I think the other element that I would say is that we are in an environment where we had 9% price erosion last year, 7% if you take out the enoxaparin, and that requires us to have a high focus on productivity. Each of the last three years we’ve driven over $500 million in cost savings in year. And as our product launches kick in and we start to get products out of the clinic, as we’ve seen with the recent approval on AirFluSal, and moving into later Phase III, we should see a positive mix effect over time, due to the shift to differentiated products as Joe highlighted earlier in his presentation.

And I would just conclude by saying, look, as an executive committee, we said we are going to build a plan that allows us to build margin in 2014. That means more productivity, making harder choices, harder choices around prioritization, and that’s what we’re executing, while not jeopardizing any of the future launches. Because if you look at our launches, they are fully funded. Alexandra [Hober] - UBS: And the dividend question about the 7%, is that sort of indicative for the kind of growth you’re thinking going forward?

The question was the growth rate? Alexandra [Hober] - UBS: Yeah, is that sort of indicative of what we should be thinking it’s going to be going forward? Or is that specific to 2014?

The only thing that we’ve said really is around 2014 dividend. After two years of increases, but lighter increases, we wanted to come out and really demonstrate the confidence that we have in the company and the company’s future. And then as a policy, we have said yes, our policy is to have a strong and growing dividend into the future. Right now we’re at over 70% payout ratio, and so we’ll see, as we deliver 2014 and the outlook for ’15, what that should be in ’15.

We’ll take the next question from Matthew Weston from Credit Suisse.

I have four questions, if I can. Just from a logistics perspective, it sounds like someone’s got a speakerphone, so there’s huge reverb in the background. Anyway, the questions. The first, for Harry, tax rate, 14.3% on a core basis. That seems somewhat lower than you previously guided to of 15% to 16%. What should we expect for 2014 and going forward? One for David. Lucentis, you highlighted double digit volume growth last year, but flat sales. The price reductions should normalize out this year, so should we be forecasting double digit revenue growth in 2014? And then one for Jeff. AirFluSal, the Danish approved the medium and the high dose equivalent of Advair, but it seems like the subsequent approvals have only really endorsed the higher dose. Can you explain to us why?

Okay, starting with Harry on the tax rate. But in the booth, can we see if you can fix the echo? It sounds like there’s quite a bit of feedback. So if you could work on that? And then Harry, tax rate?

Certainly, our tax rate, our reported tax rate, was 13.4%, at the lower end of the range I would expect going forward. So you mentioned core 15% to 16% there. 14% to 15% on a reported is more where I see us going forward.

The dynamics for Lucentis will be, as you point out, different this year. We will start, eventually, in the second half of the year, to lap the pricing. On the other hand, we’re going to see [ivea] entering France, U.K. and Canada. So I would certainly dampen those expectations, probably more towards low single digit growth if I had to give you some idea of where the product will be. And then after ’14, we would expect growth to become more dynamic.

On AirFluSal, the mid and high strengths, which are the bulk of the market were approved, not only in Denmark but also in Sweden and Norway. And then as you noted, the high strength COPD indications for Germany, Belgium, and several eastern European countries. We just got approval for Romania today. And if you look at the DCP that we filed, each country has its own regulatory process, so it would probably not be appropriate for me to comment on the questions that we have around the mid strength in other countries. But what I can say is that while we won’t comment more broadly on our filing strategy, there was strong logic and thought put into the sequencing of where we went when. And we will notify the market as we receive further approvals, and look forward to bringing both the mid and high strengths across Europe.

We’ll take our next question from Andrew Baum from Citi.

First, regarding the [regulated] asset swap, just on logistics, could you comment on the level of overlap in the back office between the animal health and the OTC divisions? Just thinking about realizations of potential synergies, if that structure was indeed one that came into effect. Second, I note that there’s been three departures from the board. Should I assume there’s no intention to replace the two academic researchers that you’ve lost? And then finally, on LEE011, should we expect the Phase II data at ASCO? And when should we anticipate interim analysis from the ongoing Phase III?

In terms of the asset swaps, there’s very little overlap between the back offices of animal health and OTC. So these are quite standalone businesses, and while there was some sharing of services, they are quite separate. So I don’t think logistically that is going to be an issue. In terms of the departures from the board, really that’s a question for the nominating committee in terms of who will eventually join the board. So I can’t really comment on the departures of the two academicians. You saw that there is the formation of a research and development committee at the board level, so I think there is a lot of interest at the board level in terms of the technologies that we are exploring and bringing into the company through research. And so there’s going to be, I think, additional debate, additional conversation, around that. And then David, on LEE?

As you know, we chose to do an expanded basically Phase I program, and then go right into a clinical trial, based upon our own data as well as data from Pfizer. The other thing we’re doing with this program that some other companies can’t do is restarting combination trials with PF3 kinase inhibitors and other TKIs, with an idea of trying to create what might become and ideal breast cancer regimen. So you’ll start seeing some of that data coming out, but not as early as ASCO.

We’ll take our next question from Tim Anderson from Sanford Bernstein.

Is it still in the realm of possibility that Gleevec generics in the U.S. get delayed because of additional patent protection? And confirming that that’s not part of the 2015 guidance? And on that same topic of Gleevec generics, because you’re starting to see generics in some markets, do you think you’ll see Tasigna have a noticeable impact or slowdown? Or do you think the impact from generic Gleevec on Tasigna will be minimal over time? Because obviously there’s going to be a massive pricing difference between the two, and in reality both drugs are quite good. But second question is on biosimilars. In your press release, you give first filing timelines for most pipeline products. For biosimilars, you don’t really lay out any timelines. Can you tell us, on some of the bigger products, like Enbrel, or Humira, or Rituxan, whether there’s a reasonably good chance that you’d be able to launch those once patent protection goes off? So really at the time of loss of patent protection on those products? And the last question, on AirFluSal, are there any European countries where you think your product will be deemed to be substitutable to seretide, either officially or in practical terms?

I’ll start with Gleevec. We’ve encouraged people to model the worst case scenario, which is Gleevec competition in the U.S. mid-2015. Your question is is it possible that we could have some type of protection beyond that? And the answer is we have multiple patents, and we will work to defend those patents, and if anything changes, we will certainly let you know. You also asked whether what we’ve included in the 2015 guidance, you can correct me if I’m wrong, Harry, but we assumed worst case scenario in our 2015 guidance.

Correct.

Now, the question about Tasigna, I think everybody wants to know what happens when there’s cheap Gleevec in the market, what’s the impact on Tasigna. I actually believe what will happen is that you will see many patients started on a generic Gleevec and then they will be switched to a Tasigna. I wouldn’t expect any wholesale switching from Tasigna to Gleevec. The data we have, unfortunately, to prove that, is relatively thin. For example, some of the markets where there are generics, including Russia, Canada, Brazil, Tasigna is a relatively modest sized product, in part because in some of these markets there’s no reimbursement for Tasigna. But even on those small bases, we’re seeing very robust growth rates for Tasigna, 30%, 70%, and the like. So we see no obvious slowdown when a generic Gleevec gets introduced.

For competitive reasons, we don’t give guidance on timing of when we’re looking to bring our products to market. You mentioned Enbrel, Humira, and Rituxan, which as you know are all in Phase III. I think for some products, looking across the biosimilars landscape, we’ll see launches of biosimilars at patent expiry and for others we won’t. It’s really dependent on a molecule by molecule basis. Keep in mind that a lot of the analytical and tactical development and even clinical development work was out in front of regulatory guidance in some cases, and so we have to ensure that it dovetails in all cases with regulator expectations. In terms of AirFluSal substitutability in Europe, in most markets it is non-substitutable, and so it is [vtailed]. It’s hard for me to say what all markets will do across Europe. I think you may see substitutability in a couple, but for the most part it will be a non-substitutable product.

Yeah, it’s safest to assume nonsubstitutable, [vtailed] product.

We’ll take the next question from Eric Le Berrigaud from Bryan Garnier.

I have three questions, please. First, again on guidance, perhaps referring to slide number 32. It looks on the right side, on the core operating income level, that should we assume that there’s no Diovan generic this year? The red bar should be added to the gray one? And then probably you would cross the double digits under these circumstances? Could you perhaps confirm that should be right, or perhaps give some kind of sensitivity for each month or each quarter gain on Diovan generics on the core operating income side? Second question, on free cash flow, obviously 2013 was fairly disappointing from that perspective on free cash flow, and the only guidance you’re giving us for ’14 is that second half is expected to be higher than first half. Could you be a little bit more specific whether it’s fair to assume that free cash flow in ’14 should be at least in line with ’13, or if there is again a risk of the cash flow being below ’13? And third and last question is a very small one on LDK, can you perhaps remind us whether there is any companion diagnostics developed on the product? Perhaps not filed the same time as the drug as a second line indication, it’s not necessarily needed, but at the latest time, and whether it’s a [unintelligible] product, or an external collaboration?

Certainly this slide 32 you refer to is based on the assumption that a Diovan generic would enter in the U.S. in roughly April of this year. If that doesn’t happen, every month is roughly $100 million in sales, a little bit less of that is profit. And this would improve this chart, you know, barring unforeseen events. So you’re correct. Cash flow, we don’t usually guide on it. I believe we will have some increase. Certainly, on the other hand, FX we have to model in, so I would see a low to mid-single digit growth.

And regarding a companion diagnostic for LDK, actually those diagnostics exist in the marketplace today, so there’s no need for a new one per se, so it’s not required for the approval. Having said that, the current diagnostic is less than optimal, and we’re working with other companies to help introduce a better quality diagnostic so that more patients can be identified.

We’ll take the next question from Richard Vosser from JPMorgan.

Just on consumer, with the return to the market of more products, should we be thinking of an acceleration in the sales growth there in 2014? I know there’s no guidance. On vaccines, could you define the pre-pandemic contribution in ’13, and then give us some idea how we should be thinking about ’14. Obviously Bexsero coming through to a certain extent, but the flu season in 2013 was pretty strong as well. So some idea of what we should think there would be useful. Then a couple of product related questions. Just on Seebri, I noticed of course you’re doing a once-daily asthma trial. Could you explain whether this is for the U.S. as well as Europe, and what has given you extra confidence to star this program at this stage? And then just on Jetrea, I know it’s early in the launch. the reimbursement or the nice recommendations have been there for a while. So just the early feedback you’re getting from ophthalmologists across Europe, and how that may have differed with what was seen across the pond in the U.S. would be very useful as well.

Okay, starting with Brian, could you maybe dimensionalize some of the things that are happening in OTC in ’14? We haven’t given specific outlook, but may you could just talk about what’s happening?

As you know, in the U.S. business we launched Lamisil and Triaminic and Excedrin end of 2012 and 2013. About halfway through the year, we launched Benefiber. And for next year, we expect to launch Theraflu for that cough and cold season.

:

I think pandemic upside you had in 2013, due to H7N9 sales, was not materially different from pandemic opportunities you had in previous years. How this will play out in this year, too early to tell. I mean, you have very good data on our H7N9 vaccine, and there may be other opportunities coming along to sell more of it. But as with any new virus emerging, it’s difficult to predict exactly how it would go. We expect, of course, sales to increase from Bexsero this year. We said this year will be the first year where we expect significant contribution from Bexsero. But significant means will depend a bit on how quickly countries adopt the product into their national campaign. But if I combine the two things that I mentioned, for sure we plan this year to grow and to accelerate growth in vaccines versus previous years.

And David, on Seebri?

As you point out, Seebri is a once a day drug in Europe. We don’t know what it is in the U.S., but it’s likely to be a twice a day drug in the U.S. So the asthma program, which is once a day, is focused on ex-U.S. at this time.

And Kevin, on Jetrea?

I would characterize 2013 as a learning year. So on the very positive side, we are very pleased with the recognition of the reimbursement agencies in terms of clinical benefit to the patient and willingness to reimburse. Secondly, we’re learning about targeting the patient profile. So the importance of having clear OTC pictures that target against the same patient profile that was used in the registration studies. And we are seeing some initial signs now that when we really focus on the patient profile, the drug does work as it was demonstrated in the Phase III studies. And then lastly, I would say we’re ramping up in terms of David and my organizations to be able to jointly sell Lucentis and Jetrea, which gives us the firepower in the marketplace to launch something that today is unmet. It’s new treatment, it’s a paradigm change, but we’re uniquely positioned to be able to make that happen in the market.

We’ll take our next question from Jeff Holford with Jefferies.

I just wondered if you can help us a little bit in terms of the 2014 operating profit guidance by just splitting out the profitability mix of vaccines and diagnostics in 2013 for us. Also, I note that the FDA in its biosimilar guidance does have some concerns about immunogenicity of chronically administered subcutaneous products such as a Humira. How are you addressing that in your Phase II program? I know that they had talked about potentially requiring switching studies there. And then just lastly, do you have any intelligence on the out of patents that have been filed on Humira, which extend beyond, we believe, the end of 2016. What intelligence do you have around those?

On diagnostics, as I said, the outlook for 2014 basically excludes the blood transfusion diagnostic business in 2013 and 2014. And the diagnostics sales in 2013 have been around $0.6 billion, and it has been a profitable part of vaccines and diagnostics. So the operating income in 2013 was roughly around $0.2 billion. Now, the negative impact on the core EPS in 2014 due to the diagnostic divestment, I expect approximately is $0.06 to $0.07. One has to note that the earnings impact includes royalty related income and that has a decline profile over time.

The FDA immunogenicity subcutaneous comments and potential need for switching studies, I’d rather not give guidance as to the dialog that we’ve had with FDA on our Phase III programs. What I can say is if you look back historically, even on nonbiologic products like enoxaparin, immunogenicity was raised as an issue, and we were able to address their concerns to their satisfaction through analytical characterization. So I have high confidence in my development team and in our development teams at Novartis that are working on these products. In terms of Humira out of patents, probably best to ask AbbVie about their patent landscape beyond 2016, so I think I’ll take the Fifth on that one.

Next question is from Seamus Fernandez from Leerink.

Just wanted to get a little bit of a better sense of your evolving commitment to dermatology. We see the chronic idiopathic urticaria. You’ve also got the Fougera generics line, which I believe is one of the fastest-growing areas in dermatology. So as we kind of think about the bridge between your biologics, which I believe are also the fast-growing, do you believe additional scale would be a benefit to your decisions around the dermatology business and division there? And how might you go about building out that potential scale? Would you consider acquisitions in that regard? And then as a second question, for combinations of LEE011, the CDK46, can you just talk a little bit about other areas where you see opportunities? You guys have done some of the most detailed work around the cancer genome atlas. And just wonder where you see additional opportunities outside of breast cancer.

I’ll share my opinion on dermatology, and others can jump in. I personally think the portfolio that we have now before us gives us all the scale that we need. And I think this will make us one of the biggest players in the dermatology market in the not too distant future. So I would leave it at that. With LEE011, there are a number of other indications that are in Phase I that we have spoken about. And then I would have to get you Bill Sellers, our head of oncology discovery, to go into all the other possibilities. I’m just the wrong guy to answer the question at this time.

And Jeff, you want to comment on Fougera and building scale in dermatology generics? Because this is a very exciting space.

So I think overall what I would say is that we’ve been quite pleased with the acquisition of Fougera. It is a business that has performed very well for us, with strong double-digit growth and very good margins given the limited competition nature of a lot of these markets. It’s by and large a retail generics business in the U.S. which we are looking to take global in a number of markets to complement the emerging strength that we have in derma in some of the big generic markets globally like Germany, Russia, Italy, and elsewhere. So I feel very good about our position there. In terms of scale, as Joe mentioned earlier, we have the number one position globally in generic dermatologics, so I believe we do have scale. We can always look to complement, tuck in, and build onto our derm business, but we feel very good about the platform that we have for growth in that area.

Next question is from Naresh Chouhan from Liberum.

On emerging markets, your sales have held up much better than some of your peers, and in the last few quarters your growth has actually started to accelerate. Can you give us some insight as to why you’re doing better than some of the competition? And on Gleevec, I know you’ve mentioned that despite some generics in some countries still growing quite strongly, I can’t believe that would be the case in places like Canada. And can you give us an outlook for 2014 and beyond as to how we should see those generics playing out and whether or not multiple generics have actually launched yet? And then in Sandoz, could you go through the drivers of the sales guidance of mid to high single digit and how sustainable that is?

Starting with emerging markets, I think when you think about the Novartis portfolio, not only do we have innovative pharmaceuticals and eye care, but also generics and OTC play a critical role in driving growth in emerging markets. So I think just by definition our portfolio is going to put us at a competitive advantage in terms of growth in those emerging markets. It is building. It’s good. Anybody who wants to jump in in terms of their success in emerging markets go ahead, but I really think it comes down to the fact that we’ve got the right portfolio for emerging markets.

I think that’s what I’d like to follow up on. The idea that you can sell just old products in emerging markets is a fallacy. Those products face competition in price. So the innovative approach that we’re using for the established world is the same thing that’s going to drive growth in the emerging markets, as long as you have the infrastructure in those emerging markets. And we’ve been pretty good at picking the right countries and making those investments.

And on Gleevec?

I wasn’t 100% sure what the Gleevec question was.

I think it was around guidance for 2014. I think really it was around [unintelligible].

It was around the generics in places like Brazil and Canada and the countries that you’ve already talked about in the release, and what we should expect in ’14. So I would have thought that we’d see a decline in those markets.

There will be increasing generic penetration against Gleevec in the markets where the generics have already launched. We also in 2014, the Japanese patent expires, so you would expect Gleevec to start to come under pressure this year.

And Jeff, on guidance?

Yeah, looking at 2014 we expect to see strong contributions, continued contributions, from western Europe, which has grown double digits three years in a row, two or three times the market. That’s excluding Germany. From emerging markets as well, where we saw a nice accelerate of growth in the last two years, I will say that if you look at our top three generic competitors, their sales coming from emerging markets in the last full year were 2%, 6% and 14% of their sales. Ours were about 27-28%. So while it’s still not as high as we’d like to get it, to 40% or 50% of our sales, it is significantly higher than our competitors. And then really, the differentiated product momentum that we have, 23% growth in biosimilars last year to $420 million. We expect to see good continued growth there. Also seeing good growth in oncology injectables in this. And we then layer on respiratory, dermatology, as you talked about in some of these other important launches that we’ve had, coupled with U.S. launches, that gives the growth profile that Harry talked about, at mid to high single digits.

Next question is from Michael Leuchten from Barclays.

One question for Harry, and then a couple of product questions, please. The wording that you used when you talked about the difference between sales growth and core EBIT growth for 2014, you used the word “slightly.” Just wondering why you take that wording to talk about how much faster core EBIT can grow on top of sales. Then on the product questions, in Gilenya, can you please talk about the U.S. pricing environment? The product came in below consensus expectations. Afinitor in the U.S. sequentially flat over Q3 after a good Q3 over Q2, even though the trends haven’t changed. Just wondering where the lumpiness is coming from. Then Jakavi sequentially was down. Wondering what the trend there is. I thought we were looking for an improvement. And then lastly, on Sandoz, AirFluSal, the two biggest markets in Europe seem to be U.K. and France. Anything on timing as to when you think you’ll be able to launch in those markets?

You know, you have to step back and look at, with the assumption that Diovan mono in the U.S. would become generic in April, we are facing up to $3 billion of generic impact. That is significant. It’s more than we faced this year in 2013, the $2.2 billion. We’re initiating additional productivity, that’s clear, but I, just by saying “slightly,” wanted to manage expectations that the expansion with this Diovan mono assumption will not be massive. But we will build margin with our current plans.

And I think that’s key, that it is this assumption about when it comes, and I believe it is around worst case. So then the question is, the longer it stays, the more you change the world “slight.”

On Gilenya, if you look at Q4 in the U.S., there was some inventory drawdown. There’s also increased rebate pressure in the MS market in the U.S., which has an impact. Having said all that, if you look at the actions by our competitors, they are still aggressively taking price, and in fact the gap between, for example, some of the products and Gilenya, which is at the high end, has shrunk fairly significantly. So there’s still apparently room to take price. The next question was around why was Afinitor flat in the fourth quarter, and just to remind you, worldwide it was up 33% for the year. In the U.S. Afinitor Q4 growth versus prior year was up 21%. What you have to understand is for oncology drugs, because of the price level, they’re impacted by donut hole and other revenue deduction adjustments. So I think it will not be unusual to see softer back halfs for some of the cancer drugs than for the earlier part of the year. Actually, all the indicators we have are on track. For example, we see Afinitor being used in earlier stages of disease, and for longer periods of time. So I feel pretty comfortable that everything’s okay there. And then for Jakavi, you asked us why there’s sort of lumpiness in sales. First of all, we don’t sell in the U.S., which means we have a greater percentage of our business in tender markets, so depe3nding on when those tenders occur, the product will show growth or not show growth. And in addition, it would appear, although this is somewhat conjecture, it looks like one of our competitors bought a large quantity of product in Q3, probably to do a clinical trial.

On AirFluSal, we don’t comment on our filing and regulatory strategy, as I noted earlier, but there was a lot of thought that was put in, and quite a bit of logic, into why we sequenced the markets in the way that we did. As you know, we’ve had now five, with Romania today, markets approved, in addition to Germany and the three Nordic countries, and Hungary. Actually, six then. And those are our wave one countries. So we’re looking forward to bringing this product to not only a number of countries in Europe, or most countries in Europe, but around the world. And so we’re excited about this launch, and it’s just getting underway.

We’ll take our next question from Tim Race from Deutsche Bank.

A question for Joe. I suppose first of all a big picture question. One of the surprise factors for the last year has been the fact that there’s no price elasticity of demand in the U.S. and we’ve been seeing, perhaps, four, five, six times inflationary price increases. Could I just have your thoughts on where the endgame with this is? Which products, which classes, can you continue to do this? Because we’re seeing it currently on products which are patented, the tail end of their life cycle, as well as new products. And where does that fit in with your innovation theory? And just really what you think the endgame is. And then maybe just a question more in the pharma space on the LEE011 and the CDK development. Is the glass half full? Or is the glass half empty? What do you expect from these products maybe being the second player in this space versus being sort of the only player in the space with Afinitor? Do you expect these to push Afinitor further and further back with less usage when they eventually launch? Any views there would be great.

Let me start on the pricing. I think when you talk about price pressure around the world, it’s different by market. And I think we have to assume that in the U.S. there’s going to be increasing price pressure. So when we’re building our long term forecast, we’re not assuming that there’s going to continue to be able to take price in the U.S. There’s just more and more pressure there. And I wouldn’t want to go into what our strategy is in the U.S. today in terms of tail end products versus not, but just the approach that we’re taking as a company is the endgame is no more pricing in the U.S. and that you better be able to innovate and continue to build your portfolio in ways that can give you a mix pickup and can give you additional volume at the same price or to deal with even declining prices.

So there was multiple LEE questions, which means I probably need a chart on LEE in one of my next presentations. But just to try to bring perspective, the goal in breast cancer is to delay chemotherapy as long as possible. There are now multiple lines of therapy. There’s hormonal therapy, there’s M2R inhibitors and the like. There will be [PI3] kinase inhibitors. There will be CDK46 inhibitors. It looks like the CD46 inhibitors are used in earlier stages of disease, so first line. And it looks like based upon the Pfizer data and our data as well that the duration of use will actually be fairly lumpy, which is a good thing. I’ve already told you that I expect Afinitor to be a $2 billion product or more. So given that these products will be used earlier, and for longer duration, it starts to set up what the opportunity is in the space. Now, in terms of competition, it’s basically us and Pfizer. Pfizer finished their Phase II early, with very good data. And ultimately, in terms of the competitive space, there’s two scenarios, I believe. One is Pfizer manages to get approval on their Phase II data, in which case they launch before we do, and we’re number two in. Or, they have to wait for their Phase III data, and I think the launches will be basically on top of each other, and it will be a competitive fight and we believe we have a pretty good oncology organization.

We’ll now take the next question from Florent Cespedes with Exane BNP.

First of all, for David, on Seebri, why this submission will be now in the U.S. in Q4 versus H1 previously? And could you remind us when we should see new clinical trial results on Seebri? Second question on Tasigna with the [unintelligible], now you are saying that you should submit in 2016 the dossier for this new approach. Previously, it was beyond 2017. Is this due to the fact that you have fully enrolled the clinical program, or is there anything behind on the regulatory side, for example? Then a quick question for Andrin on the vaccines on Bexsero, could you be more specific on how you see the situation for Bexsero in Europe? And for the U.S., what could be the next step for a [unintelligible] approach scenario from Bexsero?

Seebri is pretty straightforward. FDA asked us for a little bit longer duration of therapy, so basically longer follow up, which then delays the filing. Just to be clear, Ultibro submission is on track, and that’s the one that really matters in terms of when you see the data. Some of it will start to come out this year and probably the rest of it will be next year. In terms of Tasigna, it’s simply the fact that we accrued a little bit faster. But nothing else has really changed.

On Bexsero, in Europe we have launched, as Joe has mentioned, now in several private markets. And we plan during the year to launch in most markets in Europe the product for private use. The same is true for Canada and Australia, where the product has been approved as well. With regard to a national campaign, which of course gives much stronger leverage to generate growth, we are awaiting the opinion in the U.K. from the JVCI. We’re still confident and optimistic that we will find a way forward in the U.K., but we’re also working with countries. We have, for example, in Germany, the first positive recommendations already for inclusion and reimbursement, not on a national level, but on a state level, and there are already a wide number of insurance companies in Germany who are reimbursing the product. So very good momentum. And we’re also working in Ireland for example to get that product on a national schedule fairly quickly. Just to give a few highlights. In the U.S., the situation right now is in flux. As you may remember, we have said our primary objective for the U.S. is an [unintelligible] vaccine that would give complete protection against all circle [unintelligible] groups. Now, last year we had this unexpected outbreak in Princeton, which has created a lot of attention. And we have, under an extended investigational use application, vaccinated now 5,000 students in Princeton. The vaccination rate was very high, 95% of all students got the vaccine. Everything went very well, and created a lot of positive momentum. There is another outbreak in Santa Barbara, and the state officials there in California have also informed parents that vaccination should happen in Santa Barbara at the university as well, in Q1. That would be up to 20,000 students. So you wonder how long it will take until finally maybe there is a way forward by which we could get Bexsero licensed in the U.S. For sure we cannot keep on shipping it just under investigational use. So we are in discussions with authorities there. It’s too early to tell which way it would go, but for sure we are doing whatever we can to get the product to the U.S. as quickly as possible.

We’ll take our last question from Steve Scala with Cowen. Steve Scala - Cowen & Company : I have two questions, both for David. First, does Novartis have in house the Bolero-2 overall survival data. And whether or not you have the data, when will it be presented? And second, your comments around generic Gleevec in the U.S. may be consistent with what you said in the past, but less confident than I would expect given the timeframe involved and the fact that it looks like you have a very formidable data crystal patent expiring in 2019. So has there been any recent developments which stop you from being more confident? And what is the next data point that we could look forward to in figuring out when generically that may arrive in the U.S.?

So if I’m not mistaken, for Bolero-2, there have been several cuts of the data, so at least some of the data is in house. And regarding Gleevec, my enthusiasm or outlook hasn’t changed at all, and it just sounds like I must be in a different mood today. [laughter]

So it’s essentially unchanged. I’d like to thank everybody for their attention, and calling in today, and we look forward to giving you an update at our first quarter. Thank you very much.